Arthur Hayes, co-founder and former CEO of cryptocurrency exchange BitMEX, recently took to X Explains Why he believes that the expected interest rate cuts by the US Federal Reserve may not have the expected impact on the price of Bitcoin.
Lowering interest rates is not a magic solution to Bitcoin’s rising price
Hayes stated on X that despite Federal Reserve Chairman Jerome Powell almost confirming the upcoming interest rate cuts from September 2024 onwards, the price of Bitcoin may not behave the way many in the crypto market expect.
Since Powell’s Jackson Hole speech on August 23, 2024, Hayes noted that the price of bitcoin has been on a steady downward trajectory, falling from around $64,000 to $58,881 by September 3, 2024.
According to the former BitMEX CEO, the incoming interest rate cuts have made reverse repurchase agreements (RRPs) a relatively more attractive investment prospect than Treasuries, which attracted significant capital during the interest rate hike starting in March 2022.
For the uninitiated, repo transactions are similar to short-term loans used in the money markets, where one party—usually a central bank or financial institution—sells securities to another party under an agreement to repurchase the same securities at a later date for a higher price. The difference between the sale price and the repo price is the interest earned by the buyer of the securities.
Currently, US Treasuries pay a reasonable interest rate of 5.3%, making them an attractive and safe way for institutions looking to temporarily park their capital. By comparison, one-year Treasuries pay a reasonable interest rate of 5.3%. to push 4.38% interest.
Hayes adds that the interest rate differential between recommended retail bonds and Treasuries is forcing large banks and money market funds to move their capital from Treasuries to recommended retail bonds, leaving less liquidity in the market that can be used to buy more risky assets like Bitcoin.
It is worth noting that retail interest rates have received an additional $120 billion boost since the announcement of potential rate cuts starting in September 2024. Hayes expects this trend to continue as long as Treasury rates remain below retail interest rates.
Could Bitcoin Halving Play a Major Role in Resuming the Bull Market?
Hayes’ interpretation contradicts the widely held assumption that lowering interest rates Helps This has led to a rise in the prices of riskier assets such as stocks and digital assets. However, it should be remembered that this year also saw the first decline in the value of Bitcoin since 2020.
Historically, Bitcoin has continued to Appreciates In value over the years of halving, including in 2020 when the Covid pandemic destroyed prices of all risk-exposed assets early in the year. Many veteran analysts expect Bitcoin to repeat its price action after the halving, igniting fresh bullish momentum that could propel the leading digital asset to new all-time high prices.
Crowned by interest rate cuts, Bitcoin halving, and more Institutional interest in Bitcoin exchange-traded funds (ETFs) in 2024 is expected to create a lot of excitement for the rest of the year in the cryptocurrency industry.
Featured image from Unsplash.com, chart from TradingView.com
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